A permanent repeal of the Jones Act would provide relief especially to the people of Puerto Rico. Pictured: People carry a shopping cart with groceries down steps in San Juan, Puerto Rico, March 25, 2020. (Photo: Ricardo Arduengo/AFP/Getty Images)
COMMENTARY BY
Patrick Tyrrell is a research coordinator in The Heritage Foundation’s Center for International Trade and Economics.
A waiver of the century-old Merchant Marine Act, also known as the Jones Act, was said to be on the table at Friday’s White House meeting between President Donald Trump and U.S. oil producers.
If legislation was passed to make such a waiver permanent, applying it to all shipments, not just oil, that would be a long overdue shot in the arm to the U.S. economy and relieve some of the financial strain households and businesses now face because of the coronavirus pandemic.
A permanent repeal of the Jones Act would provide relief especially to the people of Puerto Rico who have long had added costs tacked onto the prices they pay for food, energy, staples, and other goods shipped from the U.S. mainland. In fact, shipping imports from U.S. ports cost better than 150% more than shipping imports from non-U.S. ports to Puerto Rico.
The Jones Act long has hindered maritime trade between ports within the United States and U.S. territories because its requirements that any shipments of goods between such ports must be done by ships that are U.S.-built, U.S.-flagged, and at least 75% U.S.-crewed make domestically connected shipments prohibitively expensive in comparison to international shipments.
Jones Act-compliant ships are expensive to build and operate, which adds to the price of the goods transported on them when those goods are brought to market.
Americans pay higher prices because goods that otherwise would be transported between states most cost-effectively by sea arrive instead by road or by rail, or by ship from foreign ports.
Some commodities such as liquefied natural gas cannot even be brought to Puerto Rico from the U.S. mainland because Jones Act-compliant carrier ships do not exist.
The coronavirus has caused government officials in Puerto Rico to largely shut down economic activity in recent weeks.
According to the U.S. Department of Labor, 7.7% of the Puerto Rican labor force filed for first-time unemployment benefits in the two weeks ending Mar. 28. And the week ending Mar. 28 saw more than 30 times the number of first-time unemployment filings than an average week from Jan. 1 to Mar. 7.
The Jones Act adds an estimated $300 to the annual cost of food and beverages a typical household in Puerto Rico pays. Energy costs are higher too. That’s a real strain since incomes in Puerto Rico are much lower than on the mainland.
With hard times ahead, there is no better time to permanently repeal the antiquated and costly Jones Act, freeing hard-hit U.S. businesses and households from its hidden and unnecessary additional costs which have long fallen disproportionately on the people of Puerto Rico and other noncontiguous states and territories.
The Jones Act
By WILL KENTON Updated Sep 3, 2019
What Is the Jones Act?
The Jones Act is a federal law that regulates maritime commerce in the United States. The Jones Act requires goods shipped between U.S. ports to be transported on ships that are built, owned, and operated by United States citizens or permanent residents. The Jones Act is Section 27 of the Merchant Marine Act of 1920, which provided for the maintenance of the American merchant marine.
Understanding the Jones Act
Considered protectionist legislation, the Jones Act focuses on issues related to maritime commerce, including cabotage, which is the transport of people or goods between ports in the same country. It also provides sailors with additional rights, including the ability to seek damages from the crew, captain, or ship owner in the case of injury. Perhaps its most lasting effect is its requirement that goods shipped between U.S. ports be transported on ships built, owned, and operated by United States citizens or permanent residents.
The Jones Act increases the cost of shipping to Hawaii, Alaska, Puerto Rico, and other non-continental U.S. lands that rely on imports by restricting the number of vessels that can legally deliver goods. The supply of American-built, -owned, and -operated vessels is relatively small compared to the global supply of ships, while the demand for basic goods tends to remain constant or grow. This creates a scenario in which shipping companies can charge higher rates because of a lack of competition, with the increased costs passed on to consumers. This may lead to consumers taking on more debt in order to finance purchases, which can have a negative effect on government finances.
The Jones Act is a piece of protectionist legislation that considerably increases the costs of shipping goods between two U.S. ports.
History of the Jones Act
The Jones Act was enacted by the United States Congress in order to stimulate the shipping industry in the wake of the World War I. The requirement about shipping cargo between American ports only on American ships benefited the constituents of Wesley Jones, the U.S. Senator from the state of Washington who introduced the act. Washington had a large shipping industry, and the act was designed to give the state a monopoly on shipping to Alaska. While the act benefited Jones’ constituents, it increased the shipping costs of other states and U.S. territories.
On several occasions, the U.S. government has granted temporary waivers on Jones Act requirements. This is typically done in the wake of a natural disaster, such as a hurricane, in order to increase the number of ships that can legally supply goods to an affected area.
Criticism of the Jones Act
The act has been criticized for restricting who can conduct trade with Puerto Rico, and it has been cited as a factor leading to the island’s economic and budgetary troubles. A study released by the New York Federal Reserve in 2012 found that the cost of transporting a shipping container to Puerto Rico from the mainland was twice as high as shipping the same container from a foreign port.
A 2019 report prepared by the New York City-based economic consulting firm John Dunham and Associates found that for Puerto Rico “the differentials between US- and foreign-flagged carriers range from about 41.0 percent to as high as 62.0 percent for bulk cargo and between 29 percent and 89 percent for containerized freight.” It calculated the additional costs caused by the act for the island’s economy to be nearly $1.2 billion, which comes to just over $375 per resident.
Opponents of the act want it repealed, hoping that this will result in decreased shipping costs, lower prices, and less strain on government budgets. Proponents of the act include states with owners of navy yards, defense firms, and shipping industries, as well as the longshoremen and other personnel who work in ports. Scrapping the law will likely reduce the number of U.S. maritime jobs while lowering shipping costs.
